contemplating the intersection of work, the global economy, and Christian mission

Dec 19, 2006

Economic Status (Part 1)

SOCIAL INDICATORS 2006

Economic Status (Part 1)

Economic status is usually cast in terms of income and wealth. When we talk about economic justice, we usually have one of two things in mind. First, we are asking if each person has sufficient resources to live on. Second, we are asking how income and wealth are distributed throughout society. Is it concentrated in the hands of a few or is it widely shared? I will focus mostly on income and its distribution as a proxy for economic status.

Whether we employ ourselves or are employed by others, employment is a fundamental necessity for economic survival. Low unemployment is a sign of economic health. The question is how low should unemployment be? There is always a portion of the population that is in transition between jobs. Then there are those who are chronically unemployed. The problem is that if the employment rate gets too high, a labor shortages ensue and employers began offering higher wages to attract qualified workers. Businesses raise prices to compensate for the increased wages. The workers must pay higher prices for goods and services, thus creating a cycle of inflation. As long as consumer confidence remains high about the future the cycle continues upward.

As wages escalate, businesses begin to automate and find labor saving options to avoid paying increasing wages. This eventually leads to a reduction in jobs and labor becomes cheaper because there are more laborers looking for work. Consumers become more anxious about spending and businesses lose revenue. They cut more workers. Some businesses close or drastically reduce, which means less competition for the the remaining businesses. It soon reaches a point where employers opt to hire workers because their wages are relatively cheaper and employers believe they expand sales again. Then the upward spiral begins again. This is the business cycle.

What have been the recent trends with unemployment and inflation?

The Unemployment rate and the inflation rate have been trending lower since the early 1980s. Unemployment was 5.1% at the end of 2005. Some economic experts believe that 5% unemployment is an optimal level, striking a balance between overheating the job market and leaving too many people without work. Inflation has hovered around a modest 3% over the past decade. This has been one of the most stable economies ever.

So how have people faired in this stable economy? Median household income is a frequently used barometer of how people are doing economically. The “median” is the amount made by the person who is halfway between the person making the most and the person making the least:

Median household income has risen at a steady rate over the last thirty-seven years, increasing by almost 30% in constant dollars (2005 dollars.) Minor dips in the growth are all directly linked to recessions starting in 1969, 1973, 1980, 1981, 1990, and 2001. What is noteworthy is the steady continuous growth.

So how have the poor, the elderly, and children faired during this time?

The poverty rate for families dropped by half between 1960 (22.2%) and 1973 (11.1%). It stayed below the 12% level until 1980. From then until the early 1990s the rate stayed mostly in the 13-15% range. From that point on the rate has stayed in the 11-12% range.

An important aspect of this poverty rate is the increasingly “younger face” it has. A generation ago it was common to think of older Americans when one thought of poverty. About 35% of seniors were in poverty in 1960. That number dropped to less than 15% in 1974. The rate for seniors dropped below the overall rate in 1982. Since then it has continued on a steady decline, with minor fluctuations, to a rate of 10.1% in 2004.

The rate for children declined from 26.9 in 1960 to 14.0 in 1969. The rate climbed slightly over the next decade but then climbed more steeply to 22% in 1983. It stayed at or above 20% for the next ten years. After 1993, the child poverty rate declined to a level in the mid-teens but it has risen in the past couple years to 17.8%. The child poverty rate is almost 150% of the overall rate. Single parent homes are three times more likely to be in poverty than two parent homes and the continual growth in single parent home is a contributing factor the high child poverty rate.

The overall poverty rate is near the all time lows in the mid-1970s, although it has crept a little higher in last few years in wake of the recession. Census studies suggest that half all people in poverty are not in poverty three years later which means there is considerable movement in and out of poverty. Economic status is a highly complex issue and poverty rates hide a number of other issues (ex., underemployment, wage discrimination, etc.). Still, as an overall measure, poverty is quite low by historic standards.